Here’s How Indian SMEs Can Sharpen Their Focus on CoDB


The next wave of reforms should concentrate on lowering business or company costs and expenses

The micro, small, and medium-sized enterprises (MSMEs) market in India has long been the center of interest. MSMEs, which employ over 110 people on average, account for 63 million and constitute a major part of the Indian economy. However, 99% of businesses are still in the early stages of their development. Low productivity, ineffectiveness, and resource constraints plaguing this industry make it less competitive on a worldwide scale.

Cost of Doing Business refers to all expenses incurred in the acquisition, processing, and sale of the item in question as well as other related activities. These expenses must include, without limitation, labor (including executive or officer salaries), rent, interest on borrowed money, depreciation, cost of sales, equipment maintenance, delivery costs, credit losses, cost of licenses, taxes, insurance, and advertising.

India is making strides in all areas of economic change. The scope of work done at a pan-Indian level since 2014 demonstrates its commitment to doing so. India’s “development with all, and for all” mantra is supported by policies and programs that were designed to facilitate business transactions and expenses. Ministries and States have enacted a variety of changes covering the entire company lifecycle. However, the majority of them concentrated on streamlining procedures, rationalizing workflows, digitizing processes, and getting rid of compliances. Reforms intended to lower the Cost of Doing Business (CoDB) have not received much attention in terms of implementation. India needs to concentrate more on CoDB. Cost-cutting measures are essential to boosting domestic manufacturing activity as well as luring foreign direct investment (FDI). India improved its position in the World Bank’s Doing Business Report (DBR) by 79 spots, or from 142nd to 63rd, as a result of the EoDB project. The cost of starting a business in India, according to DBR 2020, is 7.2% of per capita income, the highest among the BRICS countries as well as higher than in countries like Vietnam (5.6%) and Indonesia (5.7%). While it is 2.8% in China, 0.5% in Vietnam, and 1.3% in Malaysia, dealing with constructing permission accounts for roughly 4% of warehouse value in India. Building effective processes is a crucial first step in lowering the cost of doing business in the nation. Factor costs do have an impact on the cost of doing business, but since they are largely determined by the market, it is also important to consider other costs, such as those related to delays, certifications that intermediaries are required to provide, and the direct costs to the government for businesses. To lower and monitor the cost in India, a bottom-up strategy may be considered. A few crucial interventions include fiscal assessment to achieve reasonable standardization in the statutory cost across States and a study on the impact assessment of single window systems across States to identify bottlenecks leading to physical interventions. A nodal department can also be considered to ensure the predictability and standard timeline of policy changes. To measure and track the CoDB, a framework at the national level that encompasses the entire business lifecycle must be designed. Such a framework should include a target-driven approach where states thrive to drive reforms to achieve desired outcomes and be adaptable and transparent to provide states with ground-level insights on the cost scenario in their states. Trust-based governance, which is necessary for the country’s economic transition, is expected to alter the regulatory monitoring culture there. For instance, the severity of penalties for administrative errors and small non-compliances by enterprises affects the cost of conducting business, which unintentionally affects the country’s business environment and productivity. Reexamining clauses that are essentially procedural in nature and do not affect the public interest or national security is crucial.

The world’s fifth-largest economy is now India. The economy will be better prepared for the next big leap if enterprises’ productivity is increased by a decrease in CoDB. The spirit of cooperative and collaborative federalism is necessary to enable excellent governance, support from the states is necessary to harness the greatest benefits of the various reforms, and it is necessary to assure the efficacy of the upcoming generation of reforms.

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